Circular economy – five different basic business models

The circular economy approach uncouples growth from scarce resource usage and hence allows economic development within natural resource limits. Companies no longer predominantly focus on producing more volume and reducing costs through efficiencies in operations, factories and supply chains. Rather, they concentrate on rethinking products and services from the bottom up in order to ensure their operations are future proof. This way, they can overcome the limitations of natural resources all the way through the customer value proposition. A 2014 study by Accenture identified five underlying business models that generate resource productivity improvements in innovative ways.

• Circular Supplies: supply fully renewable recyclable, or biodegradable resource inputs that support circular production and consumption systems. Companies using this model remove inefficiencies by cutting out on waste and the replacement of a linear resource approach.

• Resource Recovery: eliminate material leakage and maximize economic value of product return flows. Solutions vary from Cradle-to-Cradle and integrated closed loop systems where disposed products can be into new ones. In other words, waste from one product is now the primary resource for developing or producing a new product.

• Product Life Extension: extend the current lifecycle of a product by means of repairing, upgrading, and reselling. As a consequence, additional revenue is generated. By applying this model, products stay economically useful for as long as possible and product upgrades are done in a more targeted way (i.e. an outdated component is replaced instead of the entire product).

• Sharing Platforms: stimulating collaboration among product users. Facilitation of sharing of overcapacity or underutilization, leading to increased productivity and creation of user value.

• Product as a Service: products are used by one or many customers by means of a lease or pay-for-use arrangement. Incentives for product durability and upgradeability are turned upside down, changing them from volume to performance. Product longevity, reusability, and sharing are no longer seen as risks of cannibalization. Rather, they function as drivers for revenues and reduced costs.

Business transformation is hard – how to move from linear to circular

As with all business transformation processes, not design or theory but execution is the hardest part. How can one move from an existing linear business model to a more circular one. In collaboration with the co-author of the Business Model Canvas, Alexander Osterwalder, Finch & Beak has created a process tool that is specifically designed to integrate sustainability into a company’s core business. In seven concise steps the existing business model and stakeholder concerns are translated into opportunities for change.

Fueling the circular economy at your company?

Is your company working on integrating sustainability and trying to advance its business model towards the circular economy? Send an e-mail to Jan van der Kaaij today via jan@finchandbeak.com if you want to learn how Finch & Beak could help you design and execute your challenge.

Image source: Sascha Kohlmann, Flickr